Chapter 1

Foundations of Business
and Economics
What is Business?
According to Griffin and Ebert
“Business is an organization that provides goods or services in order to earn profit”.

• According to Stenford
Experts’
“Business is all those activities involved in providing the goods and services needed or
Opinions
desired by people”. It means business activities called those activities which provide
goods or services required and desired by persons of our society.

According to Brown and Petrello

"Business is an institution which produces goods and services demanded by people".
 So the business is-

What is Business???

BUSINESS IS THE EXCHANGE OF FOR MUTUAL BENEFIT OR

GOODS, SERVICES OR MONEY PROFIT.
 Why We Study Business

Increasing dependence on others

International Opportunities

Standard of Living

Coping with the change

Preventing misconception
 Owners Managers

Core of Business
People

Employees Consumers
Business Objectives

Wealth Maximization Vs. Profit

Maximization
1. Survival, growth and social
responsibility
2. Profit
i. Business profit
• Risk Taking
• Evaluation of demand
• Efficient management

ii. Economic profit

 Economics is the study of how a society chooses to use
scarce resources to produce goods and services
and to distribute those for consumption.

Economics: 1.
2.
Resource (Natural, Capital, and Labor)
Goods and services

the 3. Allocation
distribution)
(Resource allocation, product

Foundation An economic system is an accepted way of

of Business organizing
production, establishing the rights and freedom of
Ownership using productive resources and
governing
business transactions in society.

This is the process by which labor, capital, and

natural
resources are organized to produce and distribute
goods and services in a society.
 Chapter 2

Forms of Business Ownership

 Whether he is successful in the short and long run depends on -

I. how well he can manage his people and resources,

ii. how much the consumer likes and buys his products,
Summary of
Greg Braendel's iii. how well he controls the cost and financial end of business, and
Case Study
iv. how good he is at making decisions.

Q. In which situation without having any educational/professional degree or

business experience a person can start a business and be successful?

Q. Does it justify that starting a business requires no professional degree or

prior business experience?
 Factors need to be examined before owning a business-

Factors to be examined to own a business

1. Capital
2. Risk 3. Control
requirements

4. Managerial 5. Time 6. Tax

abilities requirements liabilities
Sole Proprietorship Business

A business owned and managed by one individual.

Advantages of SPB
1. Ease of starting
2. Control
3. Sole participation in profit and losses
4. Use of owners' abilities
5. Tax breaks
6. Secrecy
7. Ease of dissolving
Disadvantages of SPB

1. Unlimited liabilities
2. Difficulty in raising capital
3. Limitations in managerial ability
4. Lack of stability
5. Demands on time
6. Difficulty in hiring and keeping high-
achievement employees

Trade license
Partnership Business
A business owned by two or more people

Types of PB
1. General Partnership
2. Limited Partnership
3. Master Limited Partnership

Trade license
 A number of individuals and businesses
Joint join together in order to accomplish a
Venture specific purpose or objective or to
complete a single transaction.
The Partnership Contract
Main features
1. Name of the business partnership
2. Type of business
3. Location of the business
4. Expected life of the partnership
5. Names of the partners and the amount of each one's
investment\
6. Procedures for distributing profits and covering losses
7. Amounts that partners will withdraw for services
8. Procedure for withdrawal of funds
9. Duties of each partner
10. Procedures for dissolving the partnership
Advantages of Partnership
• 1. More capital
• 2. combined managerial skills
• 3. Ease of starting
• 4. Clear legal status
• 5. Tax advantages
 Disadvantages of a PB

Disadvantages
of partnership Liability
1. Unlimited 2. Potential 3. Investment
disagreement withdrawal
difficulty

4. Limited 5. Instability
capital
availability
Other unincorporated forms of business

1. Syndicates

2. Business trust
 Corporation
A business that is a legal entity separate from its owners

• Forming a Corporation requires-

• Charter
• Domestic corporation
• Foreign corporation

 Memorandum of Association
Article of association
The range of Corporation’s relationship

Professionals
The corporation
Managers

Shareholders
Property

Creditors People

Customers
 • 1. Private
Types of Corporations • 2. Public

Types of • 3. Closed
• 4. Open
Corporations • 5. Municipal
• 6. Domestic
• 7. Foreign
• 8. Alien
• 9. Non-profit
• 10. Single individual
CORPORATE POLICY PROXY
MAKER
Advantages of Corporation

1. Limited liability

2. Skilled managerial team

Advantages
3. Transfer of ownership of a
4. Greater capital base Corporation
5. Stability

6. Legal entity status

• Difficulty and expense of starting
• Lack of control
• Multiple taxation Disadvantage
• Government involvement
• Lack of secrecy
s of a
• Lack of personal interest Corporation
• Credit limitations

Table 2.5 comparison of four major types of business organization

Mergers
combining two or more business enterprises into
a single entity
• Horizontal merger
• Vertical merger
• Conglomerate merger
 Chapter 3
Entrepreneurship &
Franchising
The Entrepreneur

A person who takes the risks necessary to organize and manage a

business and receives the financial profits and nonmonetary rewards.

Enterprise
The business of an entrepreneur.

Intrapreneur
An entrepreneurial person employed by a corporation and encouraged
to be innovative and creative.
The growth oriented entrepreneur
Why do entrepreneurs continue to emerge when significant risks, time and energy are needed to
be successful?

1. Need for achievement

2. Low need to conform
3. Persistence
4. High energy level
5. Risk-taking tendency
 Franchise

The right to use a specific business name (Pizza Hut, Subway, H & R Block, Block¬ buster,
Masterworks International) and sell its goods or services in a specific city, region, or country.

Franchising is a system for the selective distribution of goods and/or services under a brand
name through outlets owned by independent businessmen called “franchisees”; although the
franchisor supplies the franchisee with know-how or brand identification on a continuing
basis, the franchisee enjoys the rights to profit and runs the risk of loss. The franchisor
controls the distribution of his goods and/or services through a contract which regulates the
activities of franchisees, in order to achieve standardization.
• Franchising
• Franchisee
• Franchisor

Elements:
1. a contractual agreement
2. A branded goods or service
3. Operation by a business person
4. Monitoring by the franchisor
The franchising agreement

Case: Mc Doland’s
1. Real estate ownership
2. Territorial restrictions
3. Cancellation provisions
4. Required exclusive handling
Advantages of Owning a Franchise
Guidance
Brand name
Proven product
Financial assistance

Disadvantages of Owning a Franchise

Costs
External control
Weak training programs
• Americans love their independence. This desire for freedom extends to the job one holds. The
closest one can get to being independent is owning a business. Many people love to be their own
boss.
• Entrepreneurship—being your own boss—is popular today. Success stories abound, and
everyone wants to believe they can be a success.
The enthusiasm for small business and entrepreneurship is at an all-time high. This enthusiasm is a
prerequisite for a healthy economy. Many of the most publicized corporate giants began as small
businesses and grew large through effective management.14 For example, three engineers working
out of a garage established the fastest-growing company in the United States, Compaq Computer;
Coca-Cola began when a pharmacist brewed a batch of syrup that tasted good; a restaurant owner
named Colonel Sanders owned a small cafe that served “finger-lickin’ good” chicken; and a
salesper¬ son named Ray Kroc discovered a tasty hamburger in California that he turned into the
McDonald’s burger.